<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
------------ -------------
Commission file number 0-7416
SHARED MEDICAL SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 23-1704148
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
51 Valley Stream Parkway
Malvern, Pennsylvania 19355
(Address of principal (Zip Code)
executive offices)
(610) 219-6300
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No
----- -----
On October 31, 1994, there were 22,937,296 shares of Common Stock outstanding.
Page 1 of 12.
The exhibit index appears on sequentially numbered page 12 of 12.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements.
SHARED MEDICAL SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEET
----------------------------------
<TABLE>
<CAPTION>
September 30 December 31
1994 1993
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and short-term investments . . . . . . . . $ 20,280,000 $ 35,826,000
Accounts receivable, net of reserve of
$5,531,000 in 1994 and $4,279,000 in
1993 . . . . . . . . . . . . . . . . . . . . . 134,493,000 113,138,000
Prepaid expenses, inventories, etc. . . . . . . 22,525,000 16,572,000
------------ ------------
Total Current Assets. . . . . . . . . . . . . 177,298,000 165,536,000
------------ ------------
Property and Equipment, at cost:
Land and land improvements. . . . . . . . . . . 10,712,000 10,703,000
Buildings . . . . . . . . . . . . . . . . . . . 58,962,000 57,368,000
Equipment . . . . . . . . . . . . . . . . . . . 166,447,000 183,257,000
------------ ------------
236,121,000 251,328,000
Less: Accumulated depreciation and
amortization . . . . . . . . . . . . . 132,720,000 146,463,000
------------ ------------
103,401,000 104,865,000
------------ ------------
Computer Software, net of accumulated
amortization of $33,901,000 in 1994 and
$28,552,000 in 1993 . . . . . . . . . . . . . . 36,751,000 33,547,000
------------ ------------
Other Assets. . . . . . . . . . . . . . . . . . . 58,607,000 37,494,000
------------ ------------
$376,057,000 $341,442,000
============ ============
</TABLE>
The accompanying note is an integral part of this statement.
2
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEET (Continued)
--------------------------------------
<TABLE>
<CAPTION>
September 30 December 31
1994 1993
------------ ------------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Notes payable . . . . . . . . . . . . . . . . . $ 22,211,000 $ 5,830,000
Current portion of long-term obligations
under capital leases. . . . . . . . . . . . . 2,826,000 2,433,000
Dividends payable . . . . . . . . . . . . . . . 4,813,000 4,778,000
Accounts payable . . . . . . . . . . . . . . . 21,659,000 16,509,000
Accrued expenses . . . . . . . . . . . . . . . 32,611,000 32,434,000
Current deferred revenues . . . . . . . . . . . 31,285,000 23,477,000
Accrued and current deferred income taxes . . . 2,864,000 7,379,000
------------ ------------
Total Current Liabilities . . . . . . . . . . 118,269,000 92,840,000
------------ ------------
Deferred Revenues . . . . . . . . . . . . . . . . 17,525,000 21,619,000
------------ ------------
Long-Term Obligations Under Capital Leases. . . . 4,840,000 6,395,000
------------ ------------
Deferred Income Taxes . . . . . . . . . . . . . . 21,319,000 22,382,000
------------ ------------
Stockholders' Investment:
Preferred stock, par value $.10;
authorized 1,000,000 shares; none
issued. . . . . . . . . . . . . . . . . . . . - -
Common stock, par value $.01; authorized
60,000,000 shares;
1994 1993
---------- ----------
Shares issued. . . 26,940,075 26,770,731
Less-
Treasury shares:
Donated. . . . 1,114,400 1,114,400
Purchased. . . 2,905,961 2,903,523
Shares
outstanding . . . 22,919,714 22,752,808 269,000 268,000
Paid-in capital . . . . . . . . . . . . . . . . 31,115,000 28,829,000
Retained earnings . . . . . . . . . . . . . . . 240,449,000 228,831,000
Purchased common stock in treasury,
at cost . . . . . . . . . . . . . . . . . . . (55,036,000) (54,948,000)
Cumulative translation adjustment . . . . . . . (2,693,000) (4,774,000)
------------ ------------
Total Stockholders' Investment . . . . . . . 214,104,000 198,206,000
------------ ------------
$376,057,000 $341,442,000
============ ============
</TABLE>
3
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
CONSOLIDATED STATEMENT OF INCOME
----------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------- ---------------------------
1994 1993 1994 1993
------------ ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Service and system
fees..................... $127,280,000 $112,117,000 $365,402,000 $330,817,000
Hardware sales............. 11,554,000 11,617,000 31,209,000 34,283,000
------------ ------------ ------------ ------------
138,834,000 123,734,000 396,611,000 365,100,000
Cost of Hardware
Sales...................... 9,352,000 8,662,000 25,435,000 26,586,000
------------ ------------ ------------ ------------
Revenues Less Cost of
Hardware Sales............. 129,482,000 115,072,000 371,176,000 338,514,000
------------ ------------ ------------ ------------
Expenses:
Operating and
development............... 60,237,000 51,805,000 170,800,000 153,709,000
Marketing and
installation.............. 42,032,000 38,900,000 122,331,000 113,394,000
General and
administrative............ 12,213,000 11,022,000 34,426,000 32,499,000
Interest................... 361,000 326,000 937,000 1,077,000
------------ ------------ ------------ ------------
114,843,000 102,053,000 328,494,000 300,679,000
------------ ------------ ------------ ------------
Income Before
Income Taxes............... 14,639,000 13,019,000 42,682,000 37,835,000
Provision for
Income Taxes............... 5,709,000 5,827,000 16,646,000 15,257,000
------------ ------------ ------------ ------------
Net Income.................. $ 8,930,000 $ 7,192,000 $ 26,036,000 $ 22,578,000
============ ============ ============ ============
Net Income Per Common
Share...................... $.38 $.31 $1.12 $.98
============ ============ ============ ============
Number of shares used
to compute per
share amounts.............. 23,252,000 23,031,000 23,237,000 23,028,000
============ ============ ============ ============
Dividends Per
Common Share............... $.21 $.21 $.63 $.63
============ ============ ============ ============
</TABLE>
The accompanying note is an integral part of this statement.
4
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
September 30
----------------------------
1994 1993
------------- -------------
(unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income................................. $ 26,036,000 $ 22,578,000
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization.............. 23,174,000 22,450,000
Asset (increase) decrease -
Accounts receivable....................... (15,986,000) (4,527,000)
Prepaid expenses, inventories, etc........ (5,822,000) (2,444,000)
Other assets.............................. (5,187,000) (5,875,000)
Liability increase (decrease) -
Accounts payable and accrued expenses..... 4,034,000 (3,669,000)
Deferred revenues......................... (1,652,000) 14,933,000
Accrued and deferred income taxes......... (5,578,000) 2,033,000
Other...................................... 1,430,000 (1,696,000)
------------ ------------
Net cash provided by operating
activities.............................. 20,449,000 43,783,000
------------ ------------
Cash Flows from Investing Activities:
Property and equipment additions........... (13,255,000) (17,631,000)
Investment in computer software............ (8,657,000) (8,307,000)
Dispositions of equipment.................. 487,000 361,000
Investments in subsidiary and
partnership............................... (17,000,000) (8,200,000)
------------ ------------
Net cash used for investing activities.... (38,425,000) (33,777,000)
------------ ------------
Cash Flows from Financing Activities:
Dividends paid............................. (14,378,000) (14,233,000)
Change in treasury stock................... (88,000) 18,000
Payments on long-term obligations under
capital leases............................ (1,772,000) (1,364,000)
Increase (decrease) in notes payable....... 16,381,000 (1,485,000)
Exercise of stock options.................. 2,287,000 950,000
------------ ------------
Net cash provided by (used for)
financing activities.................... 2,430,000 (16,114,000)
------------ ------------
Net Decrease in Cash and Short-Term
Investments................................ (15,546,000) (6,108,000)
Cash and Short Term Investments, Beginning
of Period.................................. 35,826,000 30,854,000
------------ ------------
Cash and Short-Term Investments, End
of Period.................................. $ 20,280,000 $ 24,746,000
============ ============
</TABLE>
The accompanying note is an integral part of this statement.
5
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
Note to Consolidated Financial Statements
September 30, 1994 (unaudited) -
Note 1 - The information furnished in this Form 10-Q reflects all normal and
------
recurring adjustments which are, in the opinion of management, necessary for
a fair presentation of the financial statements as of September 30, 1994.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Material Changes in Financial Condition
- - - ---------------------------------------
The Company's financial condition has remained strong throughout the nine months
ended September 30, 1994. Management is not aware of any potential material
impairments to the Company's current financial position nor is it aware of any
material changes.
On September 30, 1994 the Company acquired all of the outstanding capital stock
of GTE Health Systems Incorporated ("GTEHS"), from its sole stockholder GTE
Directories Corporation, for an aggregate consideration expected to be
approximately $17,000,000. This transaction has been accounted for as a
purchase.
GTEHS is a provider of hospital information systems to the healthcare industry.
Upon its acquisition by the Company, GTEHS was merged with and into the Company
and is currently operating as a division of the Company.
The most significant requirements for funds now anticipated are for purchases of
equipment, repayment of short-term notes payable, and payment of cash dividends.
The Company plans to fund these expenditures primarily through internally
generated funds.
At September 30, 1994, the Company had lines of credit with banks totaling
$51,715,000, primarily at their prime interest rates. At September 30, 1994,
$29,504,000 of these lines of credit remained unused.
6
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
Material Changes in Results of Operations
- - - -----------------------------------------
Three Months Ended September 30, 1994 Compared to the Three Months Ended
September 30, 1993.
Revenues
--------
Service and system fees revenues increased by $15,163,000 (14%) in the third
quarter of 1994 compared to the third quarter of 1993. Contributing to this
increase were higher levels of professional services, primarily related to
installations and support; system sales; and system processing fees.
Hardware sales revenues of $11,554,000 for the third quarter of 1994 did not
vary significantly from the same period in 1993.
Cost of Hardware Sales
----------------------
Cost of hardware sales increased by $690,000 in the quarter ended
September 30, 1994 compared to the same period in 1993. This increase was
primarily due to reduced hardware margins in line with industry trends, and
changes in the timing and product mix of systems installed.
Expenses
--------
Operating and development expenses increased by $8,432,000 (16%) in the
quarter ended September 30, 1994 compared to the same period in 1993. This
increase was primarily due to increased personnel and related costs to
support the higher levels of professional services provided by the Company
and increased computer hardware and related costs at the Company's
Information Systems Center.
Marketing and installation expenses increased by $3,132,000 (8%) in the
quarter ended September 30, 1994 compared to the same period in 1993
primarily due to increased personnel and related costs to support the higher
levels of professional services provided by the Company.
General and administrative expenses increased by $1,191,000 (11%) in the
quarter ended September 30, 1994 compared to the same period in 1993
primarily due to increased personnel and related costs to support the
business.
Interest expense increased to $361,000 for the third quarter of 1994 from
$326,000 in the third quarter of 1993 due primarily to the increased level of
long-term obligations under capital leases.
7
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
Provision for Income Taxes
--------------------------
The provision for income taxes decreased in the quarter ended
September 30, 1994 by $118,000 (2%) when compared to the same period in 1993.
This decrease was primarily due to the impact of approximately $750,000 of
additional tax provisions recorded in the quarter ended September 30, 1993.
These additional tax provisions were caused by the increase in the statutory
federal corporate income tax rate to 35%, which was enacted during the third
quarter of 1993. These additional tax provisions consisted of approximately
$500,000 to increase the Company's deferred tax liability to the new
statutory federal rate, and approximately $250,000 to record the retroactive
impact of the new rate for the first two quarters of 1993. This decrease was
partially offset by an increase in income before income taxes of $1,620,000
(12%) in the quarter ended September 30, 1994 when compared to the same
period in 1993.
Net Income
----------
Net income was $8,930,000 in the quarter ended
September 30, 1994 compared to $7,192,000 in the quarter ended September 30,
1993 for the reasons discussed above.
8
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
Nine Months Ended September 30, 1994 Compared to the Nine Months Ended
September 30, 1993.
Revenues
--------
Service and system fees revenues increased by $34,585,000 (10%) for the nine
months ended September 30, 1994 compared to the same period in 1993.
Contributing to this increase were higher levels of professional services,
primarily related to installations and support; system processing fees; and
system sales.
Hardware sales revenues decreased to $31,209,000 for the nine months ended
September 30, 1994 from $34,283,000 for the same period in 1993 due primarily
to changes in the timing and product mix of systems installed.
Cost of Hardware Sales
----------------------
Cost of hardware sales decreased by $1,151,000 in the first three quarters of
1994 compared to the first three quarters of 1993. This decrease was
primarily due to the decrease in hardware sales revenues. Additionally, cost
of hardware sales fluctuated due to reduced hardware margins in line with
industry trends, and changes in the timing and product mix of systems
installed.
Expenses
--------
Operating and development expenses increased by $17,091,000 (11%) in the
first three quarters of 1994 compared to the first three quarters of 1993.
This increase was primarily due to increased personnel and related costs to
support the higher levels of professional services provided by the Company
and increased computer hardware and related costs at the Company's
Information Systems Center.
Marketing and installation expenses increased by $8,937,000 (8%) in the first
three quarters of 1994 compared to the first three quarters of 1993 primarily
due to increased personnel and related costs to support the higher levels of
professional services provided by the Company.
General and administrative expenses increased by $1,927,000 (6%) in the first
three quarters of 1994 compared to the first three quarters of 1993 primarily
due to increased personnel and related costs to support the business.
Interest expense decreased to $937,000 for the nine months ended September
30, 1994 from $1,077,000 for the same period in 1993 due primarily to the
decreased level of average outstanding borrowings associated with the
Company's short-term loan obligations, partially offset by the increased
level of long-term obligations under capital leases.
9
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
Provision for Income Taxes
--------------------------
The provision for income taxes increased in the first three quarters of 1994
by $1,389,000 (9%) when compared to the same period in 1993. This increase
was primarily due to an increase in income before income taxes of $4,847,000
(13%) in the first three quarters of 1994 when compared to the same period in
1993. This increase was partially offset by additional tax provisions of
approximately $500,000 recorded in the quarter ended September 30, 1993 in
order to increase the Company's deferred tax liability to the new statutory
federal corporate income tax rate which was enacted in August 1993.
Net Income
----------
Net income was $26,036,000 in the first three quarters of 1994 compared to
$22,578,000 in the first three quarters of 1993 for the reasons discussed
above.
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are included in this report:
No. Description
--- ----------------------------------------------------------------
(2) Plan of Acquisition
Stock Purchase Agreement dated September 30, 1994 between Shared
Medical Systems Corporation and GTE Directories Corporation
(filed as Exhibit (2) to the Company's Form 8-K Report dated
September 30, 1994.)*
(27) Financial Data Schedule
(b) Form 8-K
1. On October 14, 1994 the Company filed a Form 8-K dated
September 30, 1994, concerning the acquisition of all of the
outstanding capital stock of GTE Health Systems Incorporated from
GTE Directories Corporation, its sole stockholder. Because it was
impracticable to provide the required financial statements and
pro forma financial statement information of the acquired
business at the date of the filing of the Form 8-K, no financial
statements were included in the filing. The Company will file
such financial statement information when available, but not
later than 60 days after the date on which the Form 8-K was due
to be filed.
*Previously filed as indicated and incorporated herein by reference.
10
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
Registrant
November 14, 1994 /S/ Terrence W. Kyle
- - - ----------------- ----------------------------------
Date Terrence W. Kyle
Vice President of Finance
Principal Financial Officer and
Duly Authorized Officer
11
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
EXHIBIT INDEX
<TABLE>
<CAPTION>
No. Description
- - - --- ------------------------------------
<C> <S>
(2) Plan of Acquisition
Stock Purchase Agreement dated
September 30, 1994 between
Shared Medical Systems Corporation
and GTE Directories Corporation
(filed as Exhibit (2) to the
Company's Form 8-K Report dated
September 30, 1994.)*
(27) Financial Data Schedule
</TABLE>
*Previously filed as indicated and incorporated herein by reference.
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 20,280
<SECURITIES> 0
<RECEIVABLES> 140,024
<ALLOWANCES> 5,531
<INVENTORY> 0
<CURRENT-ASSETS> 177,298
<PP&E> 236,121
<DEPRECIATION> 132,720
<TOTAL-ASSETS> 376,057
<CURRENT-LIABILITIES> 118,269
<BONDS> 4,840
<COMMON> 269
0
0
<OTHER-SE> 213,835
<TOTAL-LIABILITY-AND-EQUITY> 376,057
<SALES> 31,209
<TOTAL-REVENUES> 396,611
<CGS> 25,435
<TOTAL-COSTS> 318,566
<OTHER-EXPENSES> 34,426
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 937
<INCOME-PRETAX> 42,682
<INCOME-TAX> 16,646
<INCOME-CONTINUING> 26,036
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,036
<EPS-PRIMARY> 1.12
<EPS-DILUTED> 1.12
</TABLE>
